Assume that two investments have a three-year life and generate the cash flows shown below.Which of the two would you prefer?
A)Investment A,since it has the most even cash flows
B)Investment B,since it gives you the largest cash flows in earlier years
C)Neither,since they both have equal lives
D)Both investments are equally attractive
E)None of the above

Question

Assume that two investments have a three-year life and generate the cash flows shown below.Which of the two would you prefer? 
A)Investment A,since it has the most even cash flows 
B)Investment B,since it gives you the largest cash flows in earlier years 
C)Neither,since they both have equal lives 
D)Both investments are equally attractive 
E)None of the above

Quizplus · Accepted Answer

Investment B generates larger cash flows in earlier years, which can be beneficial to the investor in terms of reinvestment opportunities or meeting cash flow requirements. Additionally, the total cash flows generated by both investments are equal, but Investment B generates a larger proportion of its cash flows earlier in the investment horizon, which may be more desirable to some investors.

Assume That Two Investments Have a Three-Year Life and Generate